A Quick FAQ on HP-Compaq

March 19, 2002

It's the corporate soap opera that just won't end. It started last Sept. 4, when Hewlett-Packard announced its intention to buy Compaq Computer -- and saw its stock dive 19% in a massive sell-off. That led family scion Walter Hewlett, the media-shy son of HP co-founder Bill Hewlett, to publicly oppose the deal on Nov. 6 and later formally launch an oh-so-public proxy fight. Then came six months of almost daily charges, personal attacks, and a record-setting deluge of mail, ads, and phone calls to investors.

Almost everyone involved hoped -- some prayed -- it would all end with the Mar. 19 shareholder vote. Alas, it wasn't to be. While HP CEO Carly Fiorina declared that HP had a "slim but sufficient" lead to predict victory, dissident board member Walter Hewlett refused to concede. Here's a primer of how to make sense of it all:

Q: How close is the vote?

A: Very, it seems. Press reports say HP claims it has a lead as big as 2% -- roughly 38 million shares. But insiders close to Walter Hewlett say the difference could be as little as 10 million, or around 0.5%. The truth is, neither side knows exactly. Both have access to votes tallied by Automated Data Processing, which acts as a clearinghouse for some big institutional shareholders. That's roughly 80% of the total shares, says one source.

That leaves the green (to oppose) or white (to support) proxy cards that individual investors and smaller institutions sent in that now must be counted. Since only shares that are actually voted get counted, neither faction can be sure how many of these the other side has.

Q: What happens next?

A: All the proxies have been gathered and taken to the offices of IVS Associates in Newark, Del., where they'll be counted by hand. Then, each side will have the opportunity to challenge the counts. Complicating matters is the fact that many shareholders will have voted several times -- although only the last vote counts.

Q: Why did HP announce a victory if it wasn't certain?

A: It's likely that HP believes it has the votes to win. But governance experts say it's typical for management in proxy fights to declare victory regardless. "They always do," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "They'll always say, 'We think we won.' What do they lose by saying so?" He says it's a form of corporate brinkmanship, aimed at convincing the opposition that all is lost and concession is inevitable.

Q: When will it be over?

A: Fiorina says ISV will likely take weeks to count the votes. It could take months. By Peter Burrows in San Mateo, Calif.